View this email in your browser

Morning NOTE

GOOD MORNING

The ZAR weakened on the back of Risk off sentiment, following calls of a global recession and more hawkish rhetoric from various Fed governors.

OPENING RATES

• USDZAR 17.0900
• EURZAR 18.4600
• GBPZAR 21.0800

SOUTH AFRICA

• ESKOM, we remain at stage 6 with the country experiencing 4 hours of load shedding at multiple periods per day.
   
• The ANC’s caucus in Parliament wants every single Eskom power station manager to account for the breakdowns and poor management.
  • This after South Africans are without electricity for up to 12 hours daily.
  • Several sources told News24 that the meeting, which blurred the lines between the party and government, took place on Monday night,
  • where Public Enterprises Minister Pravin Gordhan, Energy Minister Gwede Mantashe and the Eskom leadership were peppered with questions on the rolling blackouts.
  • Mantashe doubled down on claims that he’s not to blame for load shedding
  • He said, ‘I don’t build power stations’.  EWN

Loadshedding continues to affect the real economy,

• The South African Poultry Association (SAPA) said that load shedding severely impacted its process to slaughter chickens, which could lead to shortages across the country.
  • The association said that in the past six weeks, it had to reduce the number of chickens it slaughtered because of its backlog caused by extended power cuts.
  • The association said it had to cull 10 million chicks in the past few weeks.
  • As franchises, such as KFC, struggle with chicken supply as a result of load shedding, SAPA said that this could affect the retail sector. EWN
     
• The Department of Public Works and Infrastructure (DPWI) advised its clients to find alternative sources of energy like solar energy due to a shortage of generators.
  • The department is responsible for maintenance and the management of all government buildings.
  • Last week, the Johannesburg High Court moved its proceedings online due to interruptions caused by load shedding.
  • Acting judge president Ronald Sutherland accused the department of providing unreliable generators.
  • However, the department clarified that the court failed to procure diesel for generators. News24
     
• SA’s annual inflation rate was 7.2% in December of 2022, down from 7.4% in the prior month,
  • but still above the upper limit of the South African Reserve Bank’s target range of 3%-6%.
• It was the softest reading since last May, as prices continued to slow down primarily for transportation (13.9% vs 15.3% in November), of which fuels (22.8% vs 25.3%).
  • Slower increases were also seen for food & non-alcoholic beverages (12.4% vs 12.5%);  source: Statistics South Africa

GLOBAL MARKETS

Stocks:

• On Wednesday, the Dow tumbled 1.81%, the S&P 500 dropped 1.56% and the Nasdaq Composite lost 1.24%, 
  • Those moves came as investors digested disappointing retail sales data and weaker-than-expected producer inflation reading in the US that fuelled recession fears.
  • Hawkish remarks from Federal Reserve officials. St. Louis Fed President James Bullard said rates were not yet restrictive and could rise up to 5.5% by year-end.
  • While Fed’s Mester and Harker also backed more rate increases.
     
• US stock futures steadied on Thursday after a broad market selloff during Wednesday’s regular session,
  • as markets continued to grapple with economic uncertainties while assessing the outlook for monetary policy.
  • Futures contracts tied to the three major indexes were all trading near breakeven.

Bonds:

• US 10 Year declined to 3.34% on Thursday January 19, according to over-the-counter interbank yield quotes for this government bond maturity.
  • Earlier St. Louis Fed President James Bullard said a reopened China makes him “nervous that will lead to upward pressure on inflation.”
  • He said, the end of China’s stringent Covid restrictions quickens the country’s economic recovery, concerns about pent-up Chinese demand
    • — and the inflation that may follow — could mean bad news for the U.S. Federal Reserve.
  • Economic data indicates that the Fed’s aggressive rate hikes are pulling down U.S. inflation,
    • but China’s demand could make commodity prices return to levels from early 2022,
      • before the U.S. central bank embarked on its journey of hiking rates to bring down inflationary pressures.
• The 10YR treasury however ignoring all the rhetoric trading lower after US PPI once again printed lower.

Yesterday

• The Dow declined 613 pts to 33,296
• The Sp500 fell 62 points to 3,928
• The Nasdaq fell 138 to 10,957

•   Image: Trading Economics

OVERNIGHT HEADLINES

• The dollar index steadied above 102 on Thursday after dipping briefly to an over 7-month low of 101.53 in the previous session, as investors digested weak US data and hawkish remarks from Federal Reserve officials.
  • Latest data showed the US retail sales declined more than expected in December while US producer prices fell the most since April 2020, stoking concerns over a potential slowdown.
    • Meanwhile, Fed’s James Bullard said rates were not yet restrictive and could rise up to 5.5% by year-end, while Fed’s Loretta Mester and Patrick Harker also backed more rate increases.
  • The dollar has come under renewed pressure this year as the annual inflation rate in the US slowed for a 6th straight month to 6.5% in December,
    • It was  the lowest reading since October 2021, raising hopes that inflation peaked at 9.1% in June.
    • The data cemented expectations that the Fed will downshift to a smaller 25 basis point rate hike in February after delivering a half-percentage point increase in December. Fx news

• Asian markets sharply lower following a decline on wall street.
  • In Japan, the Nikkei 225 fell 1.44%, snapping a two-day advance and taking cues from a negative lead on Wall Street as fears of a global economic slowdown.
    • The sentiment overshadowed optimism about a slower pace of central bank policy tightening.
  • Investors also digested data showing Japan recorded another trade deficit in December as import growth outpaced export growth.
    • On Wednesday, Japanese stocks rallied sharply after the Bank of Japan defied expectations of another policy adjustment by maintaining its ultra-low interest rates and leaving its yield control policy unchanged.

• WTI crude oil fell below $79 per barrel on Thursday, extending losses from the previous session as disappointing US data fanned recession fears.
  • Latest data showed the US retail sales declined more than expected in December while US producer prices fell the most since April 2020,
    • The data raising concerns over a potential slowdown.
  • Data from the American Petroleum Institute also showed that US crude inventories increased by 7.6 million barrels last week, defying expectations for a 1.8 million barrel decline.
    • Meanwhile, the International Energy Agency said in its latest outlook that global consumption will reach a record daily average this year led by a demand recovery in top crude importer China
    • Saudi Aramco also said that it was optimistic about oil consumption as China recovers and air travel rebounds. Gulf energy news
       
• Gold held above $1,900 an ounce on Thursday, hovering near its strongest levels in nine months on firm expectations that the US Federal Reserve will slow the pace of its interest rate hikes.
  • Meanwhile, the metal came under pressure in the previous session amid hawkish remarks from Fed officials who backed further rate increases,
  • though weaker-than-expected US retail sales and producer inflation data that fuelled recession fears tempered rate hike concerns.
  • Markets are currently expecting the US central bank to downshift to a smaller 25 basis point rate hike in February after delivering a half-percentage point increase in December.
  • Elsewhere, consumer prices in the UK also fell for the second straight month in December, adding to further signs that inflationary pressures may have finally peaked.  Kitco metals